7 Steps Legal Debt Collection Process 2024

Legal Debt Collection is an important process to ensure creditors recover money lent, for goods sold, or services provided but not paid on time. Legal Debt Collection requires deep understanding of current legal regulations, effective communication skills, and perseverance in pursuing debts. The goal of this process is to secure creditors’ rights legally and fairly, while minimising financial risks. However, what constitutes a proper Legal Debt Collection Process, adhering to legal regulations, remains a challenging question for individuals and enterprises needing debt collection. This article provides a comprehensive and in-depth perspective on the 7 Steps Legal Debt Collection Process 2024.

1. What is Legal Debt Collection?

Legal Debt Collection is the process of recovering debts in accordance with legal regulations. It is based on the terms of contracts or other agreements signed between parties to compel debtors to fulfill their repayment obligations. Applying this resolution method involves enforcement measures, including litigation, prosecution procedures in court, or coordination with authorities to enforce payment obligations.

Legal Debt Collection measures include litigation or prosecution through court procedures or coordinating with authorities to compel debtors to fulfill their repayment obligations. This method is typically applied to difficult debts (bad debts) because urgent legal measures are needed to prevent borrowers from avoiding their obligations. A Standard Legal Debt Collection Process is a procedure that requires strict adherence to specific steps and legal regulations to ensure legality and effectiveness.

2. Standard Legal Debt Collection Process 2024

A Standard Legal Debt Collection Process must comply with legal regulations and safeguard the interests of all parties involved. Generally, a Standard Legal Debt Collection Process should follow these sequential steps:

2.1. Establish transparent payment policy

Before signing agreements/contracts, parties should discuss and agree on establishing a clear and transparent payment policy. The content should specify payment deadlines, provisions for mandatory on-time payments, and specific penalties/compensation if there are delays or non-payment situations.

2.2. Identify debts and debtor information

When initiating the initial steps of the Debt Collection Process, organisations and enterprises need to carefully review contracts, agreements, and related documents concerning the debt. This includes identifying the amount owed, due dates, interest rates (if any), and terms of violation penalties. Cross-checking between records and reality ensures the accuracy of debt amounts.

Based on the information in the contract, creditors collect the debtor’s address, phone number, email, and other contact information, investigate the debtor’s financial situation, assets, and sources of income to assess their ability to repay.

2.3. Contact debtors for reminder

During the contact process with debtors for reminders, enterprises should note the following:

• Reminder Letter/Demand Letter: Send a formal reminder letter, which can be sent via email or postal mail, informing the debtor of the outstanding debt and requesting payment. This letter should specify the amount owed, payment deadlines, and legal consequences if payment is not made on time. Typically, creditors may send reminder letters/demand letters multiple times, but depending on the debtor’s cooperation, creditors consider applying the next steps of the Debt Collection Process.

• Phone calls: Contact directly via phone to request payment and explain clearly the legal consequences. Debt collection via phone requires good communication skills, flexibility, and understanding of the debtor’s situation to achieve the best results.

• Record keeping during communication: Keep records of calls, emails, and reminder letters for tracking purposes and building evidence if necessary.

2.4. Negotiation and settlement

Debt Collection through negotiation is a method of debt collection using psychological tactics while maintaining the best possible relationship with the debtor.

Enterprises should arrange direct meetings with debtors to discuss and negotiate repayment plans. This is an opportunity to understand the debtor’s financial situation and find a reasonable solution for Debt Collection.

Based on negotiation meetings, enterprises propose repayment plans to reduce pressure on debtors, such as installment payments, interest rate reductions, or extended repayment periods.

Draft a new agreement (if any) and request the debtor’s signature. This document should specify terms regarding the amount to be paid, the time frame, and the method of payment. Ensure that all agreements are documented and signed by all parties as legal evidence.

2.5. Send final notice

If the above measures are ineffective, enterprises should send a final notice requiring debtors to make payment within a short period. This letter should specify that if payment is not made, the enterprise will apply legal measures to recover the debt.

2.6. File a lawsuit

Filing a lawsuit for Debt Collection is a legal measure when negotiation and reminders do not yield results. This process requires compliance with legal regulations and meticulous preparation. Below is a detailed analysis of the litigation process for debt collection:

Consider legal factors:

• Contract and related documents: Review the contract and related documents to ensure that terms are clear and the debtor has actually breached the payment commitment.

• Payment deadline: Confirm that the debt is overdue and the debtor has not taken any payment actions. Although the enterprise has sent reminder letters and negotiated, the debtor has not cooperated.

Prepare litigation documents:

• Contract and documents: Prepare complete contract records, debt documents, agreements, and related evidence.

• Petition: Draft a detailed petition stating requirements, legal grounds, and accompanying evidence.

• Other documents include: Legal documents proving the enterprise’s legal status, such as Enterprise Registration Certificate, Investment Certificate;… Relevant documents in the dispute: contracts, invoices, delivery notes, inventory slips, mutual confirmation minutes between the parties, letters or reminders,…

Submit a petition and participate in litigation:

• Submitting a petition to the court: Submitting a lawsuit petition to the competent court and monitoring the court’s processing.

• Participate in court sessions, present requests, and provide sufficient evidence to request the court to make decisions to compel the debtor to pay.

2.7. Execute the court’s decision

• Execution of judgment: After obtaining a court decision, request the enforcement agency to execute the decision if the debtor does not voluntarily pay.

• Compulsory measures: The enforcement agency may apply measures such as seizing assets, freezing bank accounts, or other compulsory measures to recover debts.

In cases where the debtor does not fulfill their obligations under the judgment, the effective legal decision is that the enterprise has the right to submit a Request for Enforcement. At that point, the head of the civil enforcement agency will issue an enforcement decision, and the enforcement agency will then proceed to determine the conditions for enforcement and enforce the judgment according to the provisions of the Civil Execution Law.

Current law does not specify the exact time to complete a debt dispute collection case because the ability to recover debts can proceed quickly or slowly depending on the case. Enterprises want debt collection to proceed quickly and efficiently, requiring proactive collection of debtor information, enforcement conditions, and providing them to the enforcement agency.

Enterprises should note (i) legal measures to initiate Debt Collection in court should only be applied after attempting to reach an agreement with the debtor and (ii) enterprises must gather sufficient legal evidence for the court’s consideration and jurisdiction. Therefore, when implementing this measure, enterprises may consider hiring a lawyer for advice, support, and representation to implement this measure.

The above is an overview of Legal Debt Collection Process 2024. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms in Vietnam with highly specialised teams in top legal fields such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing customers with optimal and effective service.